Bharti Infratel Ltd

About the Company

Bharti Infratel is India’s leading provider passive telecom infrastructure and it deploys, owns and manages telecom towers and communication structures, for various mobile operators. The Company’s consolidated portfolio of over 95,000 telecom towers, which includes over 42,000 of its own towers and the balance from its 42% equity interest in Indus Towers, makes it one of the largest tower infrastructure providers in the country with presence in all 22 telecom circles. Bharti Infratel’s and Indus’ three largest customers are Bharti Airtel (together with Bharti Hexacom), Vodafone Idea Limited and Reliance Jio Infocomm Limited, which are leading wireless telecommunications service providers in India by revenue.

Total Tower base was at 95372 while total co-locations were at 174581 with a closing sharing factor of 1.83.

The board declared a dividend of Rs 4,1 per share on 23rd April 2020 which brings the total dividend in FY20 up to Rs 10.5 per share.

The EBITDA margin for the company improved dramatically in FY20 to 50.8% which was up 920 bps YoY.

The net profit margin also improved 540 bps YoY to 22.5% in the same period.

The sharing revenue per tower per month grew 3.9% YoY for the company.

The sharing revenue per operator per month grew 6.5% YoY in the same period.

The average residual contract period was at 4.35 years on 31st March 2020 while minimum lease payment receivable was at Rs 36570 Cr.

Investor Conference Call Highlights

The management has stated that the Long Stop Date for the merger with Indus Towers has been extended to 24th June 2020 from 24th Feb 2020 due to the COVID-19 disruption.

The company reported gross additions of 13623 co-locations in FY20.

The consolidated EBITDA grew 23% YoY in FY20. The main reason for this growth was the change in Ind AS 116 in recognition of lease expenses as D&A which pushed EBITDA up.

Pre-tax and post-tax ROCE for the company were at 24% in Q4.

The management has clarified that the company has reduced deployment since the lockdown and has been focused mainly on keeping existing networks running properly. It is only deploying personnel when there is a critical need.

The average rent per tower has gone down due to building new towers which are 1 tenant sites.

The management has stated that the company is focusing on reducing rent while keeping long term relationships with landlords intact.

The company is also looking to enhance efficiencies as the management believes there is going to be a higher demand for its services particularly from the IT services sector where most of the people are working from home now.

The management has clarified that it has never enforced any rule regarding a fixed number of tenants per tower and it builds towers as per client requirements only.

The management confirms that the company will be adding more co-locations going forward from more than 1 customer.

The increase in other expenses was due to an increase in provision in Indus for doubtful debts.

The management is confident and comfortable with the survivability of Vodafone Idea and is not worried about any disruption in payments once the moratorium ends in FY23. This is mainly because the management is confident in the capital raising capability of the Birla Group.

The management clarified that the company is not losing money on single-tenant towers and is confident that it will not encourage operators to go back to building their own towers. It has also stated that the major profits for the company start rolling in once the second tenant starts working on each tower. Thus the towers are never made with only single-tenant capability.

A ground-based tower costs around Rs 1.5 Lacs to Rs 3 Lacs to build depending on requirements. The terrain costs account for 7% to 10% of total Capex per tower.

The management remains confident in completing the merger with Indus within the new 2-month deadline.

The management has stated that it will consider doing buybacks if the taxes in dividend distribution are not feasible as compared to conducting buybacks.

The management has stated that there are indeed provisions for a higher return on single-tenant towers built on strategic sites. But there are no provisions on increasing rent on single-tenant towers in a later period of contracts.

The management believes that since the telecom market is essentially 3 player market, there isn’t a big gap in coverage areas between players and thus there are very few instances of strategic single tenant towers as mentioned in the point above.

The management has stated that the focus in rural areas is to increase coverage while the focus in urban areas is to increase the capacity of networks and in-building solutions due to an increase in in-building coverage issues.

The management has hinted that going forward CAPEX should be more inclined towards building differentiation rather than expansion of volumes. This s mainly due to the expected increase in requirements and demand for more advanced networks like 4G and 5G.

The management has admitted that there will be some recalibration of capacity between office and residential areas but overall there will not be any reduction in capacity anywhere. It may just be that the addition of capacity in residential areas will be greater than office space as demand for faster networks in such areas rises.

The management has mentioned that most critical systems for the company are already on a private cloud in a different location. There is also an opportunity for the company to look at SaaS and other IT implementations for itself going forward.

Analyst’s View

Bharti Infratel is India’s leading provider passive telecom infrastructure and it deploys, owns and manages telecom towers and communication structures, for various mobile operators. The company is facing challenges on two fronts. On one hand, its major tenant, Vodafone-idea is in bad financial shape. Hence, future business potential through them is very uncertain at the moment. Secondly, competition from Reliance Jio Infratel is very powerful. The merger with the Indus tower is getting delayed for long. Recently, the deadline has been again extended from April to June. The telecom industry is going through a consolidation phase for a long time. Moreover, the demand for towers is expected to rise going forward as demand for data in this WFH environment will rise. Hence, it would be interesting to watch out how the company performs going ahead. In the near term, completing the merger with Indus Towers could be positive for the company.